There has been plenty of slack in the economy over the past four years but inflation has been high.
The Bank, with the government’s backing, has tolerated high inflation to prevent great short-term damage to growth. That is fine, but it should be open and honest about that, rather than dress up all its decisions in terms of spare capacity and medium-term inflation. And whether this strategy is the right one for the economy in the longer term, I very much doubt.
Talking of straws in the wind, the purchasing managers’ indices for the euro-zone, released today, were weaker-than-expected. Whether that will concentrate the minds of the European leaders discussing the rescue plan is doubtful. The betting at the moment seems to be on the insurance scheme, a way of making the EFSF’s resources go further without immediately calling on European governments to stump up more cash or relying on the ECB. But it looks, once again, like a technically clever plan that will not deal with the underlying problem; that southern European countries cannot raise debt at reasonable interest rates on the markets without the promise of subsidies from their northern European partners.
- Buttonwood’s Notebook: Inflation and private investors, Economist.com, October 24, 2011.
About the author:
Zhang Xin is Trainer at chinadaily.com.cn. He has been with China Daily since 1988, when he graduated from Beijing Foreign Studies University. Write him at: zhangxin@chinadaily.com.cn, or raise a question for potential use in a future column.
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